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S&I Spr Final Study
Study Guide for Securities and Investment Spring Final
| Question | Answer |
|---|---|
| The United State banking system is commonly referred to as a _______because it includes both a federal and state regulatory system. | dual banking system |
| A __________ from either a state or the federal government is required to open a commercial bank in the United States. | charter |
| Banks that are insured by the Federal Deposit Insurance Corporation are also regulated by the | FDIC |
| Federal deposit insurance has existed since the creation in 1933 of the FDIC in response to the bank runs that occurred in the late1920s and early 1930s. | True |
| The amount of deposits insured per person by the FDIC is | $250,000 |
| This Act was enacted to deregulate the banking industry and to improve monetary policy. | Depository Institutions Deregulation and Monetary Control Act (DIDMCA) |
| This Act removed interstate branching restrictions and increased the competition among banks for deposits. It also enabled banks to grow and achieve economies of scale. | Interstate Banking Act |
| This Act permitted depository institutions to offer money market deposit accounts and permitted depository institutions to acquire failing institutions across geographic boundaries. | Garn‐St. Germain Act |
| Banks are restricted to a maximum loan amount of 15% of their capital to any single borrower (up to 25%if the loan is adequately collateralized). | True |
| The Community Reinvestment Act does not require banks to meet the credit needs of qualified borrowers in their community. | False |
| Banks are allowed to use borrowed or deposited funds to purchse common stock. | False |
| Banks are subject to capital requirements, which force them to maintain a minimum amount of _______ as a percentage of total assets. | capital |
| Which of the following is not a correct acronym for the CAMELS Rating system. | Liability minimization |
| Banks with a composite CAMELS Rating of _______ or higher are considered to be problem banks. | 4 |
| The borrower’s ability to pay is called | Capacity |
| The quality of the assets that back the loan. | Collateral |
| The circumstances that led to the need for funds. | Condition |
| The difference between the value of the borrower’s assets its liabilities. | Capital |
| The borrower’s willingness to repay loans as measured by its payment history on the loan and credit report. | Character |
| An argument for govt rescue of the banking system states that if financial institutions that were weak during the credit crisis be allowed to fail without any intervention, the FDIC might have had to use all of its reserves to reimburse depositors. | True |
| One argument against rescue of the banking system states that when the federal government rescues a large bank, it send a message to the banking industry that large banks will not be allowed to fail. | True |
| The Financial Reform Act of 2010 does not require that banks and other financial institutions granting mortgages verify the income, job status, and credit history of mortgage applicants before approving mortgage applications. | False |
| The Financial Stability Oversight Council is responsible for identifying risks to financial stability in the United States and makes recommendations that regulators can follow to reduce risks to the financial system. | True |
| The Consumer Financial Protection Bureau is responsible for regulating consumer finance products & services offered by commercial banks & other financial institutions. However, it does not regulate online banking, checking accounts, and credit cards. | False |
| Interstate banking regulations were changed in 1994 to allow banks more freedom to acquire other banks across state lines. | True |
| The number of banks has ________________ over time, thereby increasing concentration in the banking industry. | Decreased |
| This is not an example of a deposit account but is an example of borrowed funds | Eurodollar borrowings |
| A demand deposit account is also known as | Checking account |
| The traditional savings account is the passbook savings account, which does not permit check writing. | True |
| Instrument that requires a specified minimum amount of funds to be deposited for a specified period of time. | Certificate of Deposit |
| Instrument that typically has a short term maturity and a minimum deposit of $100,000. | Negotiable Certificate of Deposit |
| An instrument that does not specify a maturity. | Money Market Account |
| The interest rate charged in the federal funds market is called the governmental funds rate. | Primary credit lending rate |
| What is the primary source of funds for most banks? | Savings Deposits |
| Smaller banks rely on savings deposits while larger banks rely more on short‐term borrowings. | True |
| Because banks do not earn income from cash, they hold only as much cash as is necessary to maintain a sufficient degree of liquidity. | True |
| Type of business loan designed to support ongoing business operations. | Working capital loan |
| Type of business loan primarily to finance the purchase of fixed assets such as machinery. | Term loans |
| Type of loan that allows the business to borrow up to a specified amount within a specified period of time. | Informal line of credit |
| Type of loan that obligates the bank to offer up to some specified maximum amount of funds over a specified period of time. | Revolving credit loan |
| Some intangible assets accepted by banks include patents, brand names, and licenses to franchises and distributorships. | True |
| What is the typical maturity on mortgage rate loans? | 15 to 30 years |
| When corporations decide to issue stock & a securities firm recommends an amount of stock to issue so it can anticipate the stock that the market can absorb without causing a reduction in price. This occurs during the __ phase of stock offerings. | Origination |
| When facilitating stock offerings, an entire stock offering may be placed with a small set of institutional investors and not offered to the general public. This is called ______________. | Private placement of stock |
| When facilitating stock offerings, the original securities firm may form an underwriting syndicate by asking other securities firms to underwrite a portion of the stock. This is called____________________. | Underwriting |
| During this phase of facilitating stock offerings, the prospectus is distributed to all potential purchases of the stock, and the issue is advertised to the public. | Distribution of stock |
| During this phase of facilitating stock offerings, the securities firm acts as an adviser throughout the origination stage. | Advising |
| Securities firms securitize individual mortgages by obtaining them from financial institutions that originate them, bundling them into packages based on their risk level, hiring a credit rating agency, & selling the packages to institutional investors. | True |
| This type of brokerage firm provides information, personalized advice, and executes orders. | Full-service brokerage firm |
| This type of brokerage firm executes orders only upon request and does not provide advice. | Discount brokerage firm |
| Securities firms commonly engage in proprietary (or “prop”) trading, in which they use their own funds to make investments for their own account. | True |
| In ________, the Wall Street securities firm Bear Stearns suffered major losses from investing in mortgage-backed securities. | 2008 |
| Lehman Brothers, another Wall Street securities firm, also suffered financial problems due to bad investments in mortgage-backed securities and heavy reliance on borrowed funds. It filed for bankruptcy in September _________. | 2008 |
| The Financial Services Modernization Act prohibited the consolidation of banking, securities activities, and insurance. | False |
| This regulation requires firms to disclose any significant information simultaneously to all market participants. | Fair Disclosure |
| According to the Regulation of Analyst Ratings, an analyst’s compensation cannot be directly aligned with the amount of business that the analyst brings to the securities firm. | True |
| Economic growth can enhance a securities firm’s cash flows because it increases the level of income of firms and households and can increase the demand for the firm’s services. This factor is called _______. | Change in Economic Growth |
| A securities firm’s holdings of debt securities (such as bonds) are affected by interest rate movements. This factor is called _________. | Change in Risk-Fee Interest Rate |
| Securities firms can be affected by industry conditions, including regulations, technology, and competition. This factor is called __________. | Change in Industry Conditions |
| Securities firm has control over the composition of its managers & its organizational structure. Its managers can attempt to make internal decisions that will capitalize on the external forces. This factor is called ________. | Change in Management Abilities |
| Securities firms offer many services that are linked to stock market conditions. This type of risk is called ______. | Market Risk |
| Lower rates can encourage corporations or govts to issue more bonds, this requires more underwriting activity by securities firms. The market values of bonds in securities firms increase as interest rates decline. This type of risk is called ____. | Interest Rate Risk |
| Many securities firms offer bridge loans and other types of credit to corporations. The securities firms are subject to the possibility that these corporations will default on their loans. This type of risk is called _______. | Credit Risk |
| The earnings remitted by foreign subsidiaries are reduced when the foreign currencies weaken against the parent firm’s home currency. This type of risk is called _______. | Exchange Rate Risk |
| Bear Stearns owned two hedge funds that collapsed because of their heavy investment in subprime mortgage securities. | True |
| The idea that financial institutions may pursue high-risk opportunities in order to achieve high returns with the assumption that they will be bailed out if their strategies fail is called a | moral hazard problem |
| The Financial Reform Act of 2010 does not require that financial institutions granting mortgages verify the income, job status, and credit history of mortgage applicants before approving mortgage applications. | False |
| Mutual funds are sometimes referred to as open‐end funds because they are open to investors, meaning that they will sell shares to investors | At any time |
| The price per share of a mutual fund represents the value of the portfolio (per share) after accounting for | Expenses incurred for managing the fund |
| Funds can generate return to their shareholders by | Passing on any earned income as dividend payments to shareholders, distributing capital gains resulting from the sale of securities within the fund, and Mutual fund share price appreciation. |
| Each mutual fund is managed by one or more portfolio managers, who do not need to focus on the stated investment objective of that fund. | Each mutual fund is managed by one or more portfolio managers, who do not need to focus on the stated investment objective of that fund. |
| Mutual funds pass their expenses to | Shareholders |
| Mutual fund expenses include | Compensation to the portfolio managers and employees, Research support , Recordkeeping and clerical fees, and Marketing fees |
| Funds promoted by registered representatives of brokerage firms, who earn a sales charge upon the investment in the fund ranging between 3 and 8.5%. | Load funds |
| Funds that are promoted strictly by the mutual fund of concern, thereby avoiding any intermediary. | No‐load funds |
| 12b-1 fees are ______________ because many mutual funds do not clarify how they use the money received from the fees. | Controversial |
| In order to ensure proper governance of mutual funds, each mutual fund has a board of directors and a compliance officer. | True |
| The following is not a classification for mutual funds | Bank mutual funds |
| These funds are typically composed of stocks of companies that have not fully matured and are expected to grow at a higher‐than average rate in the future. | Growth funds |
| These funds are composed of stocks that have potential for very high growth but may also be unproven, | Capital appreciation funds |
| These funds were created to enable investors to invest in foreign securities without incurring excessive costs. | International and global funds |
| These funds contain a unique combination of growth stocks, high‐dividend stocks, and fixed‐income bonds. | Growth and income funds |
| These funds are composed of stocks that, in aggregate, are expected to move in line with a specific index. | Index funds |
| These funds focus on a group of companies sharing a particular characteristic. | Specialty funds |
| These funds invest in a portfolio of different mutual funds. | Multifund funds |
| This type of bond mutual fund is composed of bonds that offer periodic coupon payments and vary in exposure to risk. | Income funds |
| This type of bond mutual fund contains municipal bonds | Tax‐free funds |
| This type of bond mutual fund is often referred to as “junk” bond funds and are issued by highly leveraged firms. | High‐yield bond funds |
| This type of bond mutual fund contains bonds issued by corporations or governments based in other countries. | International and Global bond funds |
| The main difference between money market funds and mutual funds is that money market funds focus their investment in money market securities. | True |
| Hedge funds purchase shares from poor individuals and financial institutions and use the proceeds to invest in bonds. | False |
| In October 2000 the SEC issued Regulation Fair Disclosure, which prevents firms from providing information about earnings or other relevant information to analysts unless the information is made public. | True |
| A type of fund that issues shares and uses the proceeds to make investments in stocks or bonds representing a particular sector or country for their investors. | Closed‐End Funds |
| A type of fund that uses money that they receive from wealthy individuals and some institutional investors to invest in companies. | Venture Capital Funds |
| A type of fund that is designed to mimic particular stock indexes and are traded on a stock exchange just like stocks. | Exchange‐traded funds |
| A types of fund that pools money provided by individual and institutional investors and buys majority stakes in a business. | Private Equity Funds |
| A closed‐end fund that invests in real estate or mortgages. | Real Estate Investment Trusts |
Created by:
mrstephens
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